Bus173-Tons of old Exams

Bus173-Tons of old Exams - Which of the follou'ing...

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Unformatted text preview: Which of the follou'ing statements is false? A) If the bond trades at a discount, and investor who buys the bond will earn a retunr both from teceivin-e the coupons and from receiving a face r.alue that exceeds the price paid for the bond. B) Most coupon bond issuers choose a coupon rate so that the bonds rn'ill initially trade at. or very near to, par. qS Coupon bonds alu,ays trade for a discount. O1 ,tt uoy point in time, chan-ues in market interest rates affect a bond's its price. Which of the follorning statements is false? ffiWh"n a bond is trading at a discount. the price drop when a coupon is paid will be larger than the price in"t"ur" between coupons, so the bond's discount will tend to deciine as time passes, r' B) When a bond trades at a price equal to its face value, it is said to trade alpat. C) As interest rates and bond yield rise, bond prices u'ill fall. D) Ultimately, the prices of all bonds approach the bond's face value u'hen the bonds mature and their last coupon are paid. Which of the following statements is false? A) Because the enterprise value represents the entire value of the firm bejor{e firm pays its debt, to form an appropriate multiple, we divide it by a measure of earnings or cash flou{s after interest payments are made. B) We can compute a firm's P/E ratjo by using either trailing earnings or fotward eamings u,ith the resulting ratio called the trailing P/E or forward P/E. C) It is comrlon practice to use valuation multiples based on the firm's enterprise value. D) Using a valuation multiple based on comparables is best vieu,ed as a "shotlcut" to the discounted cash flow' method of valuation. Which of the follou'ing statements is false? l'A) Because investors are risk a\/erse. they u'ill demand a risk premium to hold unsystematic risk. B) Over any given period. the risk of holding a stock is that the dir.idends plus the final stock price will be higher or lower than expected. u,hich makes the realized return risky. C) The risk premium for diversifiable risk is zero, so investors are not compensated for holding firm-specific risk. D) Because investors can eliminate firm-specific risk "for free" by diversifying their pofifolios, they will not require a reward or risk premium for holding it. Which of the follou'ing statements is false? A) Dividing tbe covariance by the volatilities ensures that correlation is alwal's between -I and +1. B) Standard deviation is the square root ofvarjance. 'r,.C.) fne closer the correlatjon is to 0, the more the relurns tend to move to-cether as a result of common risk. D) If two stocks move to-gether. their returns will tend to be above or below avera_ge at the same time, and the covariance will be positive....
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This note was uploaded on 09/08/2010 for the course BUS 173A at San Jose State University .

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Bus173-Tons of old Exams - Which of the follou'ing...

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